The Web.config file is an XML configuration file used to manage settings for ASP.NET websites, such as database connections, caching, security, and error handling. It allows configuration independently from application code. There can be multiple Web.config files at different levels that are flattened into a single cache of settings when the application runs. Any settings in lower-level files overwrite those in higher-level files like the Machine.config. Web.config files make the configuration extensible, human-readable, and don't require an app restart when changed.